19 posts from December 2008

December 27, 2008

On
Tuesday, December 23, one of Hyde Park’s towering figures, Arnold Jacob Wolf,
Rabbi Emeritus of temple K. A. M. Isaiah Israel, died, apparently of a heart
attack, at the age of eighty-four. Arnold, however, was only one year into his adulthood, since (raised at
a time when Reform Jews did not approve of the bar mitzvah) he had just
celebrated his own coming-of-age, his bar mitzvah, at the age of
eighty-three.And this was
emblematic of Arnold’s later years. “Life begins at seventy,” he used to say, and indeed he seemed to become
more joyful, more free of stress and inner tension, as the years went by.

It’s
difficult to capture Arnold in words, because the reality was so much larger,
so much funnier, so much more improbable, than any fiction could be, even one
written by a writer far more gifted than I.Still, to try to put him before people who didn’t know
him, and to remind those who did know him of what they loved and lost in him,
seems like something that has to be tried.

If you
saw Arnold for the first time, you might think you were looking at one of those
trolls of middle-European fairy tales, a short, round, white-bearded
Rumplestilkstin whose gruff, almost snarling voice seemed suited to a character
of that cantankerous sort. But
whereas Rumplestiltskin, consumed by dislike and envy, had, I imagine, dull
guarded eyes, Arnold’s sparkled, and you could see in them such variegated
colors of love, for all the people, young and old, whom he reproved, chastised,
and even mocked. (“Religion is a
serious business,” he would say, “but this congregation is a joke.”) Rabbi Eugene Borowitz, his
contemporary, said at the funeral that Arnold was first and foremost a lover –
and then he added, “To love Jews is no small accomplishment.”You saw that accomplishment in
the eyes first, because it consisted above all in a willingness to see the
other person as the person was, and, at the same time, in a willingness to be
seen, faults and all. There was no
critique of Arnold that he did not make first and most trenchantly
himself.

December 23, 2008

Reprinted below is the editorial introduction to the issue by Russell Miller:

On
October 15, 2007, long-time University of Chicago law professor David P. Currie
passed away. He has been rightly
celebrated in the intervening year as one of the great lights of his generation
in the American legal academy. He was
best known for his comprehensive and highly respected work in American
constitutional law, federal courts, conflict of laws and environmental
law. Professor Currie’s work with
American law was lovingly recalled in the Chicago Law Review (vol. 75 - Winter
2008) and the Autumn 2007 issue of the Green Bag 2d (the engaging journal he
helped reestablish in 1997). But for a
generation of Americans and other English speakers who have come under the
thrall of German constitutional law Professor Currie is better known as one of
the two great American interpreters of the German Basic Law. As Peter Quint points out in his
contribution to this memorial collection, Currie and Notre Dame’s Donald
Kommers produced the definitive scholarly treatments of German constitutional
law in English. Their work remains
essential today. It primarily was the
publication of the 1994 book, The
Constitution of the Federal Republic of Germany (University of Chicago)
that earned Currie his place amongst our leading comparativists. German Law Journal publishes this memorial
to Professor Currie in recognition of this historic contribution. We are proud to publish two original notes
on German constitutional law both of which reflect on Currie’s influence in the
field. We also are proud to republish
Markus Dubber’s review of Currie’s book The
Constitution of the Federal Republic of Germany. Finally, it is our honor to republish two of
Professor Currie’s seminal articles on German constitutional law. We have relied upon and admired Professor
Currie’s work and we hope to acknowledge with this memorial that the work of
the German Law Journal, in no small degree, stands on his shoulders.

December 19, 2008

There has been a bit of a discussion in the blogosphere over
whether Treasury’s actions under the TARP in bailing out the car industry
should be thought of as anti-democratic. Robert Reich argued
this Wednesday and Gordon Smith and David Zaring have addressed the issue—here and
here—as
well.

I have struggled to follow the discussion. Congress passed
the original bailout bill and that created whatever authority it created.
Treasury either does or does not have power under the bailout bill to act, but
that authority arose in a standard act of our democracy.

Congress subsequently considered a specific bailout bill for
the auto industry and failed to enact that legislation. What does that do to
the legal authority of Treasury to act under TARP? Absolutely nothing, say it
again. An effort to enact a bill that fails can’t have the effect of altering
preexisting legislation. The only way for Congress to alter prior legislation
is to pass new legislation. The current Congress may believe that the prior
legislation doesn’t reach the case that the proposed legislation purports to
address, but they can’t implement that understanding of the prior law without
enacting new legislation. This is true, as is the case here, when it is
precisely the same Congress acting in both contexts, that is to say, when the
same Congress has passed the original legislation and has subsequently
attempted to pass new legislation to address the purported failure in the first
legislation. The failed legislation is just another version of post-enactment
legislative history.

Treasury either does or does not have power to act under the
original bailout bill as to the car industry. The fact that Congress considered
passing legislation directly addressing the car industry doesn’t alter the
prior legislative act. All of that is noise. Failed legislation doesn’t alter
passed legislation and it is that passed legislation that establishes what Treasury
can and cannot do under the TARP.

The White House announced this morning that loans would be
made to General Motors and Chrysler under the terms of the bailout act’s
troubled asset relief program (the TARP). General Motors will receive $13.4
billion in three chunks ($4 billion on the loan closing date of December 29,
2008; $5.4 billion on January 16, 2009; and $4 billion on February 17th, 2009
(with the last payment described as being contingent on congressional action)).
Chrysler will receive a single payment of up to $4 billion on December 29,
2008. (The term sheets are here
and here.)

The loan contemplates the creation of a car czar—actually,
more woodenly, the “President’s Designee”—who will manage the two loans. GM and
Chrysler are required to submit restructuring plans by February 17, 2009 with
full plans ready to go by March 31, 2009.

The term sheet announces key restructuring targets. These
include a bond exchange to reduce public unsecured debt by two thirds. As to
labor contracts, Japanese parity is the order of the day. Average US employee
compensation is to match by December 31, 2009 average US compensation for
Toyota, Honda and Nissan; job-banking practices are to be ended and fired and
laid-off employees are to receive no more than customary—non-auto? Non-US
auto?—severance pay; and work rules are to be modified to again match those of
the three Japanese US manufacturers.

As to the big picture, three points. First, this should
remove the specter of an immediate bankruptcy filing—in 2008—by General Motors
or Chrysler. This will push these issues out for two months and into the hands
of the Obama administration and the new Congress. It was optimistic to think
that a restructuring deal could be cut on the timeline of last week and this
now creates a more realistic window. Second, the labor blueprint calls for
Japanese parity by the end of 2009 and that is much sooner than the UAW was
willing to agree to last week. The critical issue is whether the UAW will move
on that without a bankruptcy filing. Third, the term sheet says remarkably
little about the dealership network. There is a general call for
rationalization of workforce, suppliers and dealerships but there are no
restructuring targets or term sheet requirements by February 17, 2009 for
dealerships.

On to more technical matters. First, the GM loan is being
made to GM, not GMAC. There have been some speculation Treasury would act
through GMAC so as to make it harder for other industrial firms to seek funding
under the TARP. That wasn’t done. GMAC also might fit more naturally in the
definition of financial institution set forth in the bailout legislation, but as
I’ve suggested before (here
and here),
I think Treasury has sufficient flexibility to lend to GM and Treasury has gone
that route.

Second, the government has backed away from trying to take
loans senior to existing secured loans. An early version of the auto bailout
bill did that and that raised a variety of contractual and constitutional
problems (see my post here
on that). The term sheet calls for the government’s new loan to be secured and
first but only to the “extent legally and contractually permissible.”

Third, doing the loan through the TARP rather than through
the separate auto bailout legislation has constrained the government in setting
the loan terms. The December 10, 2008 version of the auto bailout bill created
a number of bankruptcy specific provisions for the government loan, including
that the loan (i) would not be dischargeable in bankruptcy; (ii) would be
exempt from the automatic stay; and (iii) would not be modifiable through a
plan of reorganization, absent government consent. The TARP loans won’t have
those protections and presumably will be subject to the ordinary rules of
bankruptcy, as the bailout out bill doesn’t give Treasure broad authority to
preempt the Bankruptcy Code.

There is one provision in the term sheet that seems to try
to get around that. The term sheet provides that after a bankruptcy filing by
GM or Chrysler, Treasury has the right to convert its facility into a
debtor-in-possession facility. I’m not sure what to make of that. Chrysler gets
all of its funds immediately on closing and GM will have received all of its
funds by February 17, 2009. I assume that the government expects that neither
of these firms will file for bankruptcy before that date. I don’t see how a
lender, the government or anyone else, unilaterally converts its prepetition loans
into debtor-in-possession loan status.

If you haven't been to the University's main site this week, you might have missed their special feature on the recent renovations at the Law School. Below are the first few paragraphs of the piece, but you should click through to the original to view the video tour of the renovations, featuring our own Douglas Baird.

With its rhythmic patterns, vertical lines, and use of glass, the
iconic D’Angelo Law Library was the vision of renowned Finnish-American
architect Eero Saarinen. Completed in 1959, only a few years before his death, the modern structure wore down over time.

“The whole idea of Saarinen, who was not only the architect but also
the master planner for the University during the 1950s,” explains Douglas Baird,
the Harry A. Bigelow Distinguished Service Professor in Law, “was that
you could have distinguished works of modern architects that were
simpatico with Gothic architecture but also distinctly modern.”

December 18, 2008

It is hard not to notice that we have entered a period of enormous government spending and investment. Here and there some non-Keynesians speak up, but for the most part most citizens and academics think there should be some bailouts, some infrastructure investments, some climate change investments, some education initiatives, and some health care "reform." Some combination of the Lame Duck Bush Administration, the Obama Election, and most especially, the current recession has brought on the beginning of a serious spending spree and an important period of central planning and control. And think of the discretion "enjoyed" by the Treasury and other government units. Detroit may be bailed out by the unilateral decision of Treasury officials loosely interpreting Congressional language in TARP; there is amazing discretion in deciding which banks to support and which not; and the list goes on. But the way to think about this enormous relocation of decisionmaking to the public sector (whether the executive or a more careful and confident Congress) is to think at the same time of the disinclination of individuals and other investors to put resources directly in the private sector.

The automobile companies cannot raise money on their own. Few investors are plowing their funds into banks. T-Bill rates are so close to zero because people are looking for a safe mattress, and fear that any "real" investment will simply lead to losses. Note that funds are not flying out of the country and in to China or Germany, because investors do not have more confidence in private investments overseas. Somewhat similarly, money has left hedge funds and is currently parked, rather than affirmatively invested. Investors may have views about the relative promise of various industries, but they hold back because strong-form intervention by the government provides a large amount of uncertainty.

December 16, 2008

Since my post
last Friday on whether the automobile companies fit within the definition of
“financial institution” in the bailout legislation, there have been a number of
posts pursuing this question. David Zaring largely agrees,
I think, with my original analysis, in which I suggested that the statute
offered sufficient ambiguity to allow treasury to move forward. Mike Rappaport thinks
that I am clearly wrong, while Eric Posner
seems to believe Treasury can act, especially in a world of Chevron deference. And Rick Hills believes
that, given all of this, there is little reason to search for a proper legal
answer; instead the question is one of trust: do we think that the courts will
get it right or that Treasury will.

We should review the bidding. If the bailout legislation
simply referred to “financial institution” without providing a definition of
that term, we would expect the agent charged with implementing the statute to
create a definition. That would almost certainly be Treasury in the first
instance, and we might conclude, as Eric does, that Treasury would be well
within its statutory authority to cover the automobile companies, especially
given Chevron.

In contrast, if the statute actually provides a definition,
then presumably we are stuck with that definition. If the statute said that
“financial institution means Randy Picker, professor at the University of
Chicago Law School” I guess I’d have to take the $700 billion. That would be an
odd statute to be sure, but it would be the statute written by Congress. The
definition is the definition.

Walking down a city street at night, you can already use your
smartphone to check out reviews of the restaurant you’re considering.
Should you also be able to check whether any of those teenagers a block
away and closing have criminal records?

Yes, suggests Lior Strahilevitz, a professor at the University of Chicago. In fact, your phone might even automatically download that information from the teenagers’ phones.

An
invasion of privacy? By many standards, yes, but consider current
practice, Strahilevitz argued in a pair of articles this year in the
law reviews of Northwestern University
and the University of Chicago. Most people encountering teenagers size
them up by judging their clothing, demeanor and ethnicity — they
“profile.” Give people more information, and they can make better, more
individualized judgments.

In some circumstances, Strahilevitz
admitted — like blind auditions for orchestras — stripping away
personal information can reduce discrimination. But in many others,
privacy advocates get the link between discrimination and the
availability of personal information precisely backward. Take laws that
prevent employers from learning about applicants’ criminal records.
Because African-Americans are disproportionately imprisoned, such laws
are often viewed as blows against discrimination. But Strahilevitz
cited research that found that, in the absence of such laws, companies
that did background checks on applicants hired 8 percent more
African-Americans than those that didn’t do the checks. The latter
employers seemed to be discriminating “statistically” — lacking hard
data about penal histories, they made more decisions based on skin
color. As an alternative, Strahilevitz would subsidize the hiring of
actual ex-cons, rather than trying to hide their status.

Less
contentiously, Strahilevitz would also expand the “How’s My Driving?”
programs used by trucking firms to cover everyone with a driver’s
license. Insurance companies currently use broad demographic categories
to set rates — the cautious teenage boy is out of luck. If you could
phone in reports of bad driving, he’d get a break and the reckless
middle-aged would pay their fair share. At last.

December 12, 2008

If the car czar bill is dead for now, the question then
becomes whether Treasury can fund the car industry under the TARP. Bloomberg
is reporting a Treasury e-mail this morning stating the Treasury is prepared to
act while Congress is out of session. The natural question becomes whether
General Motors and the other car companies can be squeezed into the definitions
set forth in the Emergency Economic Stabilization Act of 2008.

The critical definition is for “financial institution.” We
might think that the car companies are clearly not financial institutions—put
to one side their separate finance arms like GMAC—and therefore aren’t eligible
for funds under the EESA. But the actual definition of financial institution is
stunningly broad:

(5) FINANCIAL
INSTITUTION.-The term ‘‘financial institution’’ means any institution,
including, but not limited to, any bank,savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.

The operative term is “institution” which is otherwise
undefined. Perhaps we should head to the dictionary, as the Supreme Court does
frequently, so try the online version
of Merriam-Webster:

2 a: a significant practice,
relationship, or organization in a society or culture <the institution of
marriage> ; also : something or someone firmly associated with a place or
thing <she has become an institution in the theater> b: an established
organization or corporation (as a bank or university) especially of a public
character

That would suggest that universities are eligible under the TARP—that
is good news to hear given the recent performance of university endowments—but
I’m not sure what that means for the car companies. That would seem to make a
great deal turn on the public character notion.

What should we make of the identified list of entities in
the EESA definition? It is certainly true that all of the entities listed in
the including-but-not-limited-to clause are what we would traditionally think
of as financial institutions. One could easily imagine that a court looking for
some limiting principle to the otherwise open and ill-defined “institution”
would latch on that list to limit the scope of eligibility and thereby exclude
the car companies.

But that said, I think that all of this suggests that there
is a fair amount of open territory here and that it would not be surprising, especially
in these times, for Treasury to rush in. And then the question kicks in what
level of deference which Treasury be entitled to in interpreting the language
of the EESA? That is a Chevron
question—not about oil, but about how courts interact with agencies—and that is
a question for the administrative law folks.

December 09, 2008

There is a draft
of the automobile bailout bill floating around. It is relatively brief—31 pages
double-spaced (though remember that the original draft of the big bailout law
was only three pages)—and has started to receive blogging attention already (by David
Zaring and by
Eugene Volokh). I want to focus on one particular provision, namely the
proposed seniority of the debt to be issued. (Others can address airplane
divestiture (it’s bye, bye jets).) This provision either doesn’t work or is
part of an elaborate game of chicken.

Section 11(d) on taxpayer protection provides that “in the
case of an eligible automobile manufacturer which received a loan under this
Act, any other obligation of such eligible automobile manufacturer shall be
subordinate to such loan, and such loan shall be senior and prior to all
obligations, liabilities, and debts of the eligible automobile manufacture.”
The government wants to take a senior position for its debt (along with
warrants, see 11(a)).

As Ford emphasized in the plan it filed
in Congress on December 2, 2008, the car companies come to this situation with a
deeply embedded pre-existing capital structure. Ford noted that it had roughly
$17.5 billion in senior secured debt and another $17.1 billion in public senior
unsecured debt. Although I have not seen the covenants, I would be stunned to
learn that an effort to issue senior debt would not violate those covenants.
(Ford talks through some of this in note 16 to the financial statements
attached to its 2007 annual
report.) Plus, of course, the way we do secured transactions means that the
debtor almost always lacks a mechanism to grant a senior interest to a
pre-existing position. That is the precise point of having a senior security
interest.